Troubled-CG Power & Industrial Solutions (CG) plans to raise about Rs 800 crore through an equity issue to tackle the liquidity crisis that it is facing, two sources involved with the development told ET.
The company would offer equity or quasi-equity instruments to institutional investors, existing and new, in the next few months. This is an “interim solutions” for the loss-making company that is struggling with losses and huge debt on one hand as it is trying clean up its management after an alleged fraud came to light.
A company spokesperson confirmed the fundraising plans, but declined to comment on the size of the issue. “We have hired Kotak Institutional Equities as our investment banker, and are looking at all the different options right now — we may do a qualified institutional placement of a preferential placement, but it will definitely be an equity-linked issue,” the spokesperson told ET.
CG is faced with alleged financial irregularities that may have led to the company losing Rs 3,000 crore. The company’s board has taken control of the management and removed chairman Gautam Thapar and chief financial officer VR Venkatesh from their respective positions for their alleged role in financial fraud; chief executive officer KN Neelkant has resigned. CG has appointed Ashish Kumar Guha as chairman of the board of directors, and set up a Special Situation Committee (SSC) to resolve the issues faced by the company. The board is engaging with its lenders to resolve the debt issue faced by the cash-strapped company.
“We have a strong order book and execution capability, both in India and abroad. But due to the tight working capital situation, we are not able to operate at a level that we can,” a CG executive told ET.
As on March-end, CG had a total domestic debt of Rs 2,349 crore, international debt of Rs 1,215 crore, and another Rs 463 crore contingent debt due to review process. While CG is in talks with banks to restructure the term debt, the company is in dire need of working capital. In the current environment, as Indian lenders deal with huge stressed assets, they are unlikely to restructure the debt of a company where the promoter has come under the scanner. The investors too have asked for a change of promoter and management; while the management changes are underway, the company plans to approach the capital market regulator for a change in promoter.
“No shareholder has intervened so far and shown any interest to take control. We are a board managed company right now, we can’t predict if any of the shareholders would like to take over control at this stage,” the spokesperson said.
The company had restated the financial result for 2018-19; it could not finalise the result for the quarter ended June of FY20 due to an ongoing forensic audit. The board will be meeting on November 10 to finalise the financial result for the first and second quarter.
“The company needs long term funding, even after restructuring the debt the operating performance would take time to recover. This fundraising would give us some time to put things back on track,” a senior CG executive involved with the deal told ET.
On Monday, L&T Finance acquired 9.9% stake in CG Power from Vistra ITCL, which was a trustee for L&T Finance shares in the company. Before this, private equity firm KKR had acquired a 10% stake in CG after invoking pledged shares. Institutional investors, including Yes Bank with a 12.8% stake, now own more than 51% in the company.
Source: Economic Times